Nomura with a handy guide
GBP correlations with nominal rate differentials dominate the top 10 positive correlations in the past month, while GBP reactions to risk sentiment appear to be waning. With the BoE’s policy rate at 25bps, another cut to the policy rate in November would trigger the zero lower bound. In this situation, while it is possible that GBP begins to react more to the longer end of the curve if 2y rate vol diminishes, unless the BoE changes its view on the lower bound, GBP downside movements induced by lower UK rates may be more limited going forward.
